Economic activity in the Twelfth District expanded at a moderate pace on net
during the month of September. Falling energy prices reduced upward pressures
on the final prices of some goods and services, while the pace of wage increases
generally remained contained but exerted upward price pressure in some industries.
Reports on retail sales suggested modest growth on net, while demand for most
services remained strong. Orders and output grew further for manufacturers and
agricultural producers. Residential real estate markets continued to cool, while
activity in commercial real estate markets generally expanded further but moderated
in some areas. District banks reported solid loan demand and good credit quality
but further declines in demand for residential mortgages.

Wages and Prices
District reports indicated that overall price inflation remained modest. Energy
prices fell noticeably in most areas, reducing the retail price of gasoline
and relieving upward price pressures for assorted energy-intensive products.
Contacts also noted a decline in the prices of selected building materials used
primarily for residential construction, although the prices of some other building
materials rose. More generally, respondents noted limited price pressures.

Overall wage growth remained moderate, in the range of 2-4 percent on an annual
basis. Wage growth was more rapid for selected groups of workers in short supply,
notably in the health-care, finance, and construction sectors, and in fast-growth
areas with very tight overall labor markets, such as Idaho and Utah; however,
a few respondents in those areas indicated reduced wage pressures of late. Rising
labor costs were offset by enhanced production efficiency in most cases, but
a few reports indicated significant pass-through to final prices.

Retail Trade and Services
District retail sales grew modestly from the previous survey period. Sales rose
somewhat for small retail items such as apparel, but they fell for items used
for home improvement. Auto demand changed little from the previous survey period;
sales of fuel-efficient import vehicles continued to rise at a solid clip, while
sales fell further for large, fuel-inefficient domestic models.

Service providers generally reported strong demand. Activity continued to
expand at a robust pace for providers of health services, and sales grew further
for providers of media and high-tech services. Tourist activity remained at
high levels in most major markets, but some moderation was noted. In Hawaii,
tourist visits and spending were down compared with a year earlier. In parts
of California, hotel occupancy rates reportedly have stabilized following a
prolonged climb, but room rates continued to rise.

Manufacturing
Demand for District manufactured products grew further during the September
survey period. Sales of semiconductors expanded at a solid pace that was in
line with industry forecasts, although inventories reportedly rose slightly;
capacity utilization generally remained in the range of 90 percent. Rapid production
activity continued for producers of commercial aircraft and for their parts
suppliers, while makers of machine tools reported substantial growth in new
orders of late. Food processors reported further sales gains, and demand for
apparel was "steady." By contrast, demand for selected building materials used
primarily for residential construction fell further. Except for tight supplies
of skilled workers in some areas, manufacturing contacts generally reported
little or no constraints on their ability to expand output further.

Agriculture and Resource-related Industries
Sales of agricultural and resource-related products grew further and production
conditions were stable in general. Sales were strong for livestock and most
crops, and weather conditions generally were favorable, keeping production on
track. However, some spinach producers have put planting on hold due to the
recent bacterial outbreak associated with that crop. Respondents noted further
easing of labor shortages in the agricultural sector and a reduction in upward
price pressures due to falling fuel prices. Extraction of oil and natural gas
continued at a rapid pace, with very high capacity utilization noted. However,
inventories of natural gas were reported at near-record levels, maintaining
downward pressure on the price of this commodity.

Real Estate and Construction
Demand for residential real estate fell further in most areas, while activity
in commercial real estate markets continued to expand but at a slower pace than
previously in some areas. The pace of home sales, construction, and price appreciation
slowed further in most parts of the District, and contacts in some areas noted
that developers have been offering price concessions and other incentives to
entice buyers. Demand for commercial and industrial space rose further in most
areas, reducing vacancy rates and leading to further increases in rental rates;
however, contacts in a few areas reported a recent reduction in the pace of
demand growth. In areas where home demand has been resilient or commercial and
public projects have grown rapidly, builders continued to face project backlogs
and high costs. In other areas, however, overall building activity has fallen,
and contacts noted that reduced home demand has led to layoffs for mortgage
brokers and real estate agents.

Financial Institutions
District banking contacts reported solid loan demand and good credit quality.
Overall loan demand was reported to be "healthy," as further growth in commercial
and industrial loans generally offset declines in demand for home loans. However,
a few contacts noted slight weakening in overall loan demand relative to the
previous survey period. Credit quality was high in general; for example, loan
delinquencies were reported to be "practically nonexistent" in Utah and Idaho.